This has clearly been brought into sharper light by George Osborne’s decision to do, what he called, ‘level the playing field’ when it come to buy-to-let borrowers and homeowners.
As you will see, I’m not sure there is actually any ‘leveling of the playing field’ either necessary or required, however unless there is a sizeable U-turn, there are going to be some notable decisions for advisers and their clients to make in terms of buy-to-let investment over the next few years.
So, let us start at the beginning.
As stated, some buy-to-let investors have always opted for a limited company structure when purchasing their properties because there are a number of advantages that come with it.
The reasoning behind such a decision might well have been brought into much sharper focus, particularly for higher-rate taxpayers, with the announcement made by the government in July around tax relief on mortgage interest payments.
Essentially, between 2017 and 2020 the amount of buy-to-let tax relief individual landlords can claim back will be progressively cut from a maximum of 45 per cent to 20 per cent for top-rate taxpayers.
However, and this is a point not lost on the many buy-to-let landlords/investors in this situation, the change will not affect limited companies.
Therefore, if advisers have a client in such a situation, the tax payable through a limited company will be lower than the tax on individual income.
Now, this may well mean that some landlords immediately think a move to a limited company structure is the right decision.
However, this is not as straightforward as it may first appear and we would urge advisers and their clients to make sure they have tailored information before embarking on such a move.
For each individual case, the response could differ greatly depending on personal circumstances, future intentions, and the availability of that all-important mortgage finance to limited companies for the purchase of buy-to-let properties.
As we have mentioned above, while product supply is growing there are not an overwhelming array of options, certainly nothing like those that are available in the standard/individual space.
Plus, most lenders charge higher rates and fees for such products.
Responsibilities
Clients should also be aware that having a limited company brings with it all the obligations and responsibilities that come with such a structure – so, for example, a limited company is required to file the accounts and financial status of the entire property portfolio with Companies House each year.
